Wall Street analysts and ISPs see dollar signs in the FCC's newly announced …

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You like the idea of Internet data caps and overage charges, right? And the prospect of paying your ISP separate fees for "the Internet" and for "managed" IP services like voice, video, VPN, telehealth, and smart grid applications, even when these directly compete with similar Internet-delivered services?

Okay, you probably don't—if you're a business or home Internet user. But if you're a major Internet provider, you love both of these ideas a lot... and you found support for both of them in Wednesday's "net neutrality preview" from the Federal Communications Commission.

"Broadband rationing"

When FCC Chair Julius Genachowski previewed his net neutrality proposal this week, he mentioned "usage-based pricing" and failed to mention "managed services." Neither item was accidental, and it didn't take long for interested observers to read the tea leaves.

Craig Moffett, an influential Wall Street tech analyst, said after the speech that "broadband rationing is now the order of the day" once Genachowski gave his support to the idea. It's something of a strange comment, since usage-based pricing has not been either regulated or illegal, and in fact data caps are now common even though many are high (such as Comcast's 250GB/month limit). Still, the FCC's endorsement of the idea should provide a bit of cover to wireline ISPs who want to try it.

Moffett added, "We would expect the introduction of UBP [usage-based pricing] plans from major cable [ISPs] to follow in short order, and we would expect that their stocks will respond well to such introductions."

NCTA, the influential lobby for the major cable operators, today quoted Moffett and expressed its own support for UBP as a way to "focus on what best serves consumers." CEO Kyle McSlarrow says he doesn't support any particular model (and likes flat-rate himself), but that ISPs need the flexibility to experiment in order to help "price-sensitive consumers at the lower end of the socioeconomic ladder."

In response to Moffett's quotes, a senior FCC official sent us a statement making clear that data caps, overage charges, and the like would be watched carefully for signs of price gouging in the limited-competition wireline ISP market.

"Usage-based pricing can create more choice and flexibility for consumers," said the official. "But practices that are arbitrary, anti-consumer, or anti-competitive would cause serious concern. The FCC will be a cop on the beat for consumers."

But Genachowski does support the idea, and the ISPs are glad of that explicit support. There's nothing wrong with the idea, in our view, when implemented fairly, but it's not popular with the public in large part because past attempts to implement it have correctly been viewed as a massive cash grab by ISPs that already make insanely high profit margins.

When the cable companies roll out $5 data-capped Internet access to make it easy for poor families to get online, it's hard to envision much opposition. But of course, that's not what we've seen.

We're excellent "managers"

Imagine that you are Netflix boss Reed Hastings. You're busy trying to eat the cable companies' collective lunch by offering on-demand Internet streaming video; sure, you're not there yet, but it's clear this model has a bright future except for one little worry.

The cable companies and telcos you rely on to deliver your bits also compete with you, offering profitable video services of their own that don't come through "the Internet" but are increasingly based on IP and use the exact same pipe. Should those companies be allowed to offer managed quality of service enhanced video streams over a segregated section of the last-mile Internet pipe to directly compete with your own best-effort Internet offering? And how could this possibly be a fair fight?

We don't need to imagine Hastings worrying about this scenario, though, since Netflix has made its concerns clear in writing. Back in January, the company warned the FCC about letting "managed services" swallow up the open Internet.

"The fact that network operators control the delivery pipes and generate significant revenue from content that travels over those pipes provides both the means and motive for discriminating against new ventures that might threaten revenue sources of the network operators," Netflix warned. These developments "exacerbate the growing concern that will use their control over programming networks to stifle competition, including the growing competition from online video providers like Netflix."

"ISPs need the flexibility to experiment in order to help "price-sensitive consumers at the lower end of the socioeconomic ladder."

Translation: "Aw fuck, consumers and even some of them bought-for politicians are beginning to notice that elsewhere, especially with them socialist-bastid Urropeans, broadband can be had at much higher speeds and for less money. We need new wool to pull over their eyes before these communists start to cut into our profits!!"

And the shit of it is that anyone trying to start an open internet provider is going to run into problems like:* Incumbents lowering prices to unsustainable, but immediately destructive, levels* Incumbents setting up regional exclusivity deals to 'block' features people want (e.g. ESPN online or such)* Strategic materials purchases; if you're trying to set up an ISP, and Verizon buy 10,000 Cisco switches, you might just get boned on availability and pricing

I'm thinking the American consumer just got mugged, and now the broadband/content providers are telling us we have pretty mouths.

Yah I can see it now. Are you a gamer? Yes? Oh that'll be an extra 5 dollars on top of the standard fee. Do you use Netflix or any other kind of streaming video services? Yes? That'll be another 10 dollars. How about Skype? You can tack on another 7.50.

Yeah, this will end well.

I might be a little more sympathetic to ISPs if they provided a better pipe to my home, but as it is I'm stuck with either Cox which is vastly overpriced imo for the service they offer and never was very reliable or DSL, and for my area the max DL speed(DSL) I can get is 3.0Mb/s(the current tier states 1.5Mb/s-3.0Mb/s although I never see anything approaching the higher end of that range).

I'm a capitalist at heart but when I hear about how big government and big business want to squeeze the average internet user (aka the middle class) dry it's rediculous.

What I don't think these businesses realize is that as much as we depend on their services many will just unplug (I don't think anyone has died from not being able to get on the Internet and update their Facebook wall or watch some lame show on Hulu. , just go online at work or get creative and have one person get the Internet access and a good wireless router or lay some Cat5 to the neighbors and split the bill.

Internet access isn't a right but putting up yet another toll booth to access it is bad business and bad policy.

If the supposed touch is so light then maybe we need to institute a "Japanese Hello" on them, and force them to provide internet as simple bit carriers. If they don't like it, they can sell off the business or just shut down. If they want to offer other services over the internet they can use a seperate portion of the company or a spinoff to do so.

++ to... nearly every comment before this. Assuming SgtCupCake is being sarcastic.

@xelitus: people are increasingly relying on the 'net for easy banking, bill payment, weather, travel planning, job searching, etc. so unplugging does have a number of downsides (from simple productivity to employment).

I've argued for at least a couple years that the net neutrality argument was only going to create government blessed monopolies. This is precisely what is coming to pass. If you want a truly open internet, then force the last mile to be wide open for any ISP to compete.

This rather pisses me off to no end. Like those voiced above, I'm about fucking tired of corporations trumping consumers in monopolistic markets, such as cable providers, that are sanctioned by government. This might be a non issue if cocksuckers like comcast had real competition in their respective markets. How many people would drop their asses if another competitor offered just a fat dumb pipe?

Screw these corporations and the politicians they have in their pockets. Seriously. This country (US) is seriously fucked up with corporate greed.

Google's warning will come true, because the pieces are already in place, and because the FCC isn't interested or capable of influencing competition. Lawmakers literally do not see any problem in this arena whatsoever.

Wireline ISPs don't need to have scarcity if they instead had infrastructure. I never seem to read anything saying ISPs want more bandwidth in order to satisfy customers unless it's a muni building it, and subsequently getting a lawsuit from the local monopoly ISP. Isn't that ... odd?.

The ONLY thing an ISP understands is money. Customers have to willing to go without service in order to communicate to them, if suitable competition isn't around.

I'm speechless. How could this happen? It's crystal clear here that the interests of big ISPs completely crowded out any influence consumers and the services they enjoy could exert on the discussion. The ISPs own the FCC. Innovators like Netflix are going to get completely raped by companies late to the party like Comcast who promote their own competing video on-demand service. This is a very sad day for the internet. If the FCC continues down this road soon we'll be paying for every individual email we send, charged by the character in instant messages, and be discriminated against as we try to visit various websites.

I've argued for at least a couple years that the net neutrality argument was only going to create government blessed monopolies. This is precisely what is coming to pass. If you want a truly open internet, then force the last mile to be wide open for any ISP to compete.

It's not just you -- the way to do it would be to re-classify ISPs as common carriers under Title II of the Telecommunications Act of '96. Ars has covered this extensively. And apparently the FCC has no interest in making that happen.

First, we need to say, no double dipping. You are not going to try to charge someone who is not your customer for traffic your customer requests. You are not going to purposely muck with the QOS of incoming traffic.

Second, this 'up to' speeds and other snake oil has to go. You need to define the minimum QOS and supply this to customers consistently, when QOS is delivered as promised refunds need to be applied automatically.

Third; End users who wish to pay more for better throughput and latency to particular destinations, or for particular services should be given this option.

Fourth; ISPs will have the ability to deliver the capacity you have sold, they will not over sell and screw the end users.

Fifth, ISPs/ilecs/clecs/lecs will not sue cities who roll out their own networks because the local ISPs/ilecs/clecs/lecs refused to do so.

I'm a capitalist at heart but when I hear about how big government and big business want to squeeze the average internet user (aka the middle class) dry it's rediculous.

What I don't think these businesses realize is that as much as we depend on their services many will just unplug (I don't think anyone has died from not being able to get on the Internet and update their Facebook wall or watch some lame show on Hulu. , just go online at work or get creative and have one person get the Internet access and a good wireless router or lay some Cat5 to the neighbors and split the bill.

Internet access isn't a right but putting up yet another toll booth to access it is bad business and bad policy.

This is where I am on this issue. I am pretty pessimistic, but would opt out of any service rather than signing up for this.

Sure, allow managed services. If you want to regulate it make sure that these managed services are provided to all third parties at a reasonable fee.

But I mean seriously, the cable companies already have a massive lock on their non-IP digital content delivery pipe. For example, Comcast OnDemand. Instant, HD, and much higher quality than anything Netflix can shove down Comcast's IP pipe. And there is no way Comcast will let Netflix share that highway.

Is that a violation of net neutrality? If not, why not? Is there something special about IP. If so, do the service providers just have to create a special non-IP protocol to avoid regulation?

"Your connection just isn't fast enough" is easier to swallow than "we're charging you extra to let you use your bandwidth for Netflix." I'd guess they'll start with lying before they go to nickle-and-diming.

AT&T already gives you a little chart that tells you their lowest tier (3 Mbps down/1 up) UVerse plan is only good for e-mail, sharing pictures, social networking, and downloading music. If you want internet gaming, well, the second tier on up gets a checkmark for that. "Video Clips" are in tier 3. And if you want to download movies or stream video, it's on up to the 4th tier (18 down/1.5 up).

This is total bullshit, of course, I can play games and stream Netflix in HD on the lowest tier just fine. But I think that rather than telling me it'll cost $xx extra per month for Netflix, they'll simply enforce that chart. It's much easier to point a customer a chart and tell them they need to pay $20 per month more for the tier that's "fast enough" for the service they want. Harder for the average Joe to see through. And if you argue, "YouTube already works fine, why not Netflix?" they'll point you back to the chart and say, "Well you see, YouTube is video *clips*, while Netflix is *streaming* video. Streaming video requires more speed than just these little clips."

Yah I can see it now. Are you a gamer? Yes? Oh that'll be an extra 5 dollars on top of the standard fee. Do you use Netflix or any other kind of streaming video services? Yes? That'll be another 10 dollars. How about Skype? You can tack on another 7.50.

...

I'd be surprised if that came to pass, because the cynic in me thinks that'd be too obvious. Instead, I see deals like the recent Level 3/Comcast scuffle limiting competitor's reach (less content, less bandwidth, higher cost) so that in consumer's eyes the competition slowly becomes less attractive.

The wireline ISP is constrained by marketing forces to offer $99 and similar packages. Price it higher and people balk, regardless of what's being offered. Price it lower and well, why do that when you don't have to?

The content and bandwidth they offer are the variables in play, and those can be managed either directly through tiers or by back room deals.

As a commodity, internet access is nearly the same as gasoline. Gasoline doesn't cost different amounts depending on whether you're driving to work, school, or a movie.

If ISPs abuse this lack of regulation, maybe you'll see a lot more "third-party" ISPs offering 3rd party internet over a tunnel. This would pretty much rule out any QoS, and would introduce some extra latency, but could partially nullify any set of tiers regarding what type of media you're using.

Yeah, count on them!If their past enforcement attempt is any indication, the FCC in nothing more than a bunch of toothless woos.

LOL US citizens, the Robber baron are in the place, and they're out to skin you... that's what you get when you let morons get in power.Welcome back to the 19th century, and don't forget to start learning Chinese, 'cause they are not stuck in reverse, for sure.

It's short-sighted of the FCC to let this slip by based on the fact that wireless has its limitations. Of course it does, and if it costs the companies more, they will INNOVATE and make a faster wireless infrastructure. If they can charge more and more for it, why innovate? If anything, it will cause more people to go back to using phones as phones and less as all-access devices, because they won't be able to afford the high costs. This is just horrible news. The US needs to stop working for the corporations and start working for its citizenry again.

Ah don't get my started on AT&T's stupid fucking ads. They have one on the radio now proclaiming that their "blazing fast speeds" will let you "reach the far corners of the internet, full of HD video and amazing graphics" that you can't access with a slower connection (maybe not exact quotes but close). That's just a total lie. And last I checked the net's corners were full of Harry Potter slash fanfic, low-budget fetish porn (hairy asian grannies!), and spam-flavored link soup from viagra ripoff artists.

We need more regulation, there's no way around it. I have no idea what the knee-jerk reaction against public regulation is based on. The internet is a triumph of the public sector-- it's derived from a Darpanet program, that came into being largely between public universities, it's based on Berkeley sockets, and it's running a web created at a public research lab in Switzerland. What's more, it's based on crazy hippie ideas about non-hierarchical collaboration and open information. And it works.

Ever since it was created, the private sector has been trying to carve up the openness of the internet in the pursuit of short-term profits. Rarely do you see so many knives aimed so squarely at the goose that laid the golden egg.

It seems to me that internet ought to be treated like electricity. You don't have tiers but rather charge simply based on usage at a given rate. I don't get charged more for electricity based on what I'm using but simply how much I am using. It's not like $5 to use a TV and $10 to use an oven. It's whatever the appliance draws. Why can't the internet be the same... seems fair. But what do I know, I'm just a consumer.

You know, I wouldn't have an issue with ISPs "experimenting" as long as it was mandated that they also are required to have an flat, untiered, open pipe for customers that just want their ISP to be an ISP. Hell, meter it for total bandwidth usage, I'm ok with that, just let me decide what goes across it.